When Using a Debit or Credit Card, Know Your Liability for Fraud

The recent credit card security breach at Global Payments is a wake-up call for all of us. We get in a comfort zone and forget that our financial information isn't really in a fool-proof "vault." Hackers sometimes find a way to breach even the best security systems.
The folks who hack into data systems aren't like the bumbling thieves from Home Alone. No, these people are tenacious, intelligent and crafty. We can build great security systems, but keep in mind that hackers tend to view this as a new challenge.

Of course, you can't live your life afraid to use your plastic, either. In the Global Payments breach, the hackers got both credit card and debit card account numbers, which means they have the data they need to create a clone card. Now seems like a good time to review what consumer protections you have when it comes to fraud.

I've gotten a lot of questions about how fraud protections differ between credit cards and debit cards. The Federal Trade Commission offers more details and also give tips about how to prevent other types of fraud at Facts for Consumers. But here's a quick and dirty look at the basic facts.

Credit cards: With credit cards, your maximum liability for fraudulent charges is $50. If you report the loss or theft of your card before it's used, you're not liable for anything. In most cases, even the $50 is waived (Visa, for instance, has a zero liability fraud protection policy).

Now, if the fraud involves a stolen account number and not the card itself, then you have no liability. You really have your best possible fraud protection with a credit card. At some point, we'll probably all be using smart cards. These cards have chips and it's almost impossible to clone the cards and go on a shopping spree. Smart cards would go a long way toward limiting the expense and chaos when a security breach occurs.

Debit cards: The rules vary based on the situation. If you've lost your card or it's been stolen, you must report the loss within two business days to limit your liability to $50. If you take more than two days to report it, you can be liable for up to $500.

If you see unauthorized charges on your statement, but your card isn't missing, you must report the fraud within 60 days of receiving that statement. If you fail to do so, your losses could be unlimited.

Beverly Blair Harzog Credit.com's Credit Card Expert, Beverly focuses on credit card issues and provides insight about current news that affects the credit card industry and consumers. She's a nationally recognized expert on credit card issues and is also the co-author of The Complete Idiot's Guide to Person-to-Person Lending. Reach Beverly at beverly@credit.com.